Jakarta
— Almost a quarter of a century after ousting the Dutch, Indonesia has still to tame the jungle province of Irian Jaya, the western half of the island of New Guinea. Formidable obstacles of logistics, a simmering revolt by native separatists, and now a dramatic shortage of funds are frustrating efforts to develop this primitive outpost, the easternmost point of the vast Indonesian archipelago.

For President Suharto, who has made development the watchword of his 20 years in power, the palpable failure of his policies in Irian Jaya represents a major challenge. More significantly, Indonesian officials, like the colonial administrators before them, now concede that the province's development is a strategic and economic necessity.

``Without it,'' says Ruslan Abdulghani, a former foreign minister and special adviser to Mr. Suharto, ``poverty and backwardness could create dissent among Irianese and revive separatist movements.''

Although the oil boom of the 1970s raised the living standards of many of this country's 165 million people, it did little for those in the mangrove swamps and forest highlands of Irian Jaya. As they have done for years, many of the province's 1.3 million ethnic Melanesians continue to inhabit a Stone Age world, growing sweet potatoes without the help of draught animals - let alone the wheel.

The region, which was the last foothold of Dutch colonial rule in the East Indies, remains largely unexplored.

For an area the size of California or Spain, it boasts just 320 miles of paved road.

Often missionaries provide the people's only contact with the outside world, flying food and medical supplies to any one of 240 grass airstrips that dot the interior.

Even though Irian Jaya's vast natural resource potential - timber, minerals, and fish - is all but untouched, investors are discouraged by sluggish world commodity demand and the logistical problem of running an operation that is as far from Jakarta, the country's capital, as Jakarta is from Hong Kong or Calcutta.

The province has been in Indonesian hands since 1963, when the UN, after overseeing the Dutch withdrawal, demanded that Indonesia hold a plebiscite to determine the status of the province. Critics denounced the subsequent ``act of free choice'' in 1969 as a farce, saying the government took only a sample of pro-Indonesian opinion from among the tribal chiefs.

At the time, despite international protests, principally from the Dutch, many governments ignored the affair. With the downfall in 1965 of then President Sukarno, many in the West were keen to cultivate Jakarta's new moderate leader, Suharto.

In the province itself, opposition intensified, and the separatist Free Papua Organization (OPM) was established, calling for union with its Melanesian neighbor Papua New Guinea, the other half of this huge island.

The OPM, sometimes armed with little more than bows and arrows, has waged a sporadic, small-scale guerrilla campaign ever since.

The number of active OPM supporters is small, Western diplomats say - as few as 500. They are mainly young disaffected Irianese who see the province's scarce jobs being taken by industrious immigrants from other islands.

The most serious incident to date occurred in 1984, when local civil servants and teachers raised the flag of Papua New Guinea, Irian Jaya's independent-country neighbor, in Jayapura, the provincial capital.

In the fighting that followed, some 10,000 people fled across the border into Papua New Guinea, an independent country since 1975 and the other half of this huge island.

Many of the refugees complained of Indonesian Army brutality.

According to the UN, which runs 15 refugee camps in Papua New Guinea, less than 1,000 refugees have since returned home.

OPM activity has since been more fragmented. In 1985, on Irian Jaya's northern coast, rebels killed three local employees working for the Dutch oil company Shell. Shell pulled out its drilling operation. And, according to mine officials, an American-owned copper mine has been attacked more than once recently, with rebels cutting the sluice pipes that take concentrate from the mine to the port.

Particular rebel grievances center on tribal lands, which Irianese consider the sacred property of their ancestors and not to be appropriated by the government or mining concerns, although they get compensation for the land use.

Western diplomats believe the government faces a major dilemma.

``They [the government] must bring real economic change to counter the claims of separatists. At the same time, they must stamp their mark on the province, define the border, and make the people feel part of Indonesia,'' one diplomat said.

Spearheading the development effort is a controversial transmigration program, under which the government, in the five-year plan for 1984-89, aimed to move 750,000 families from Java to the outer islands, with around 165,000 families going to Irian Jaya.

The program seeks to relieve chronic overcrowding on Java, Indonesia's main island, where more than 90 million people live in an area little bigger than England. It is also supposed to help spread development.

But the plan has attracted strong criticism from environmental groups in the West. A 1985 report sponsored by Survival International claimed that ``transmigration has become the government's key means of assimilating tribal people and taking over their lands in the interests of national development and national security'' - all charges denied by Jakarta.

The current rub is that falling earnings from oil and gas, the country's main export, have cut the program budget by 65 percent, bringing it to a virtual standstill.

The cuts have been welcomed by critics. However, Western diplomats, whose governments support transmigration through the World Bank, argue that the cuts represent a major setback to Irian Jaya's development.